Future of Financial Advice _FoFA_ – Frequently Asked Questions

Document Sample
Future of Financial Advice _FoFA_ – Frequently Asked Questions Powered By Docstoc
					Future of Financial Advice (FoFA) – Frequently Asked Questions

What is FoFA?
The Future of Financial Advice (FoFA) is a proposed regulatory framework in relation to
financial advice that was put forward by the Rudd Government in early 2010. Its stated
aims are to improve the standard of financial advice and remove distorting remuneration
(i.e. commissions). It will also see the removal of the accountants‟ exemption in relation to
SMSF advice.

When does FoFA come into effect?
Certain FoFA reforms will likely start to apply from 1 July 2012. Other elements may be
phased in or out after this date such as the removal of the accountant‟s exemption. More
information will be provided to members once the start dates are confirmed.

Will there be a transition period?
Reasonable transitional periods will be put in place to allow the industry to adopt the
changes. We will keep you abreast of developments through the IPA magazine, website,
direct email and social media. Some measures may have longer transitional periods than
others or a later start date.

Why is FoFA being brought in?
FoFA is being brought in to improve the quality of financial advice and consumer
outcomes. Enabling easier provision of simple advice is expected to make financial
advice more affordable, increase public access and usability.

Where has this come from?
FoFA came about as a result of the Ripoll Inquiry into failures of financial advice firms in
the late 2000s. The collapse of financial advice firms (e.g. Westpoint, Storm) during the
Global Financial Crisis prompted questions into whether Australians were being
adequately advised in relation to financial products and services.

What does FoFA include?
        A prospective ban on conflicted remuneration structures including commissions
        and volume based payments.
        The introduction of a statutory fiduciary duty or “best interest” test so that
        financial advisers must act in the best interest of their clients.
        Opt in advisory charging for clients every two years.
        Expansion of the availability of low-cost „simple advice‟ to improve access to
        and affordability of financial advice.
        Strengthening of the Australian Securities and Investments Commission
        (ASIC)‟s powers to act against unscrupulous operators.
          Examination of the need for a statutory compensation scheme for financial
          Removal of the accountants‟ exemption for providing SMSF advice.

Is this a good thing?
The IPA believes that changes in law that allow the provision of generic financial advice –
not linked to selling particular financial products – is something the market has needed for
some time. IPA accountants are poised to take advantage of the opportunities that this
change will bring about. We encourage members to consider the benefits FoFA could
bring them and their practices rather than being wary of change.

What is the “accountants’ exemption removal”?
Currently accountants are able to provide advice on Self Managed Superannuation Funds
(SMSF) under the exemption provided by Regulation 7.1.29A of the Corporations
Regulations 2001. With the FoFA reforms, this exemption will be removed, meaning that
accountants will be unable to provide SMSF advice without either holding an Australian
Financial Services License (AFSL) in their own right or be an authorised representative of
a license.

However, the IPA and other professional accounting bodies (Joint Accounting Bodies –
CPAA, ICAA and IPA (JAB)) believe that accountants and their clients should not be
disadvantaged by the proposed changes. We have recommended to the Government
that an appropriate system be put in place that will allow accountants to provide a greater
range of services and advice in relation to financial matters. The replacement process
must encompass the ability for accountants to talk about the whole range of
superannuation options, not just SMSF. The JAB has recommended that the Government
adopt a tiered approach to financial services regulations. The JAB is seeking a form of
licensing that is simpler and lower cost for accountants, that recognises that accountant
already meet many of the requirements to be licensed as a result of being a member of
one of the JAB bodies. If necessary we will also seek Treasury approval to change the
law to better accommodate the needs of members.

What is the IPA, as part of the Joint Accounting Bodies (JAB), proposing with
respect to allowing accountants to provide financial advice?
The IPA and the JAB is proposing that the Government adopt a tiered approach to
financial services regulation, with three tiers consisting of:

          A base level covering general advice that does not lead to a choice
          recommendation by the service provider.         This would include: General
          Superannuation, SMSF Superannuation, General Insurance and Risk Advice,
          Social Security and retirement, Banking and financial institutions and Financial
          A middle tier that would allow the service provider to advise on choice in
          existing and related products.
          A top tier of holistic financial advice that involves researching a client‟s complete
          financial advice needs and recommending choice in all product classes a
          service provider is licensed to provide.

The JAB is also proposing that any new approach encompasses:

          Simple, low cost licensing for accountants that need licensing
          Recognition of the experience already gained by accountants and allowing
          transitional period for them to gain experience if they currently do not have it.
          Assist members through guidance on how to be licensed and the various
          options available to them.

Will these changes provide opportunities for my business?
If you don‟t provide financial advice to your clients, it may be the time to think about doing
so. Research indicates that clients need at least basic financial advice; and that they
expect to receive more holistic service from their accountants, including financial
services. A failure to take advantage of this opportunity may lead to a declining client
base. Expanding your business to provide financial services may keep your clients, grow
your referrals, and their calibre, as well as providing you with a new and exciting way to
diversify your income streams away from compliance activities. Research also indicates
that the number of firms is declining as more firms merge or consolidate in one form or
another. As the value of compliance work diminishes, especially with the advent of
technology driving greater efficiencies, the need for more value added work grows.

Previously, many accountants have shied away from providing financial advice to their
clients as they have not been interested in selling products or being tied to one product
provider. The FoFA reforms may offer the solution to this, providing a tiered approach
that includes simpler more generic advice with regulatory requirements which match the
complexity of the advice being provided.

I don’t provide financial advice to my clients, will this affect me?
If you provide SMSF advice to your clients, regarding their setting up or closing down,
then this will affect you as, under the current FoFA reforms, you will not be able to provide
this advice without an Australian Financial Services License. The IPA, as part of the JAB,
is working with ASIC and Treasury to seek a simplified licensing system for accountants
who wish to have their own license to provide superannuation advice and services.
Additionally, with the launch of the IPA‟s Financial Services Platform we will be providing
access to a range of financial planning and related services that members may take
advantage of without the need for an AFSL. We will assist members in determining the
best avenue for them.
Will I have to apply for an Australian Financial Services License?
While the IPA has advocated for accountants to provide superannuation without being
licensed, the likely outcome is that accountants will have to be licensed to provide
superannuation advice, including SMSF advice. The choice will be between either being
licensed in your own right – through a streamlined process - or being an authorised
representative of a license holder.

Where members choose to have their own license the IPA will assist members with
guides on how to apply for a license. For those who wish to go down the authorised
representative route, the IPA‟s new Financial Services Platform will provide a solution.

What is the IPA Financial Services Platform (FSP) and how does it relate to FoFA?
The IPA Financial Services Platform will be launched in early May along with the
rebranded Institute of Public Accountants (IPA). This will seek to provide a number of
solutions to assist members in giving advice to clients as relates to financial services,
including SMSF and superannuation. Stay tuned for the launch of the FSP in May.

How long will I have to comply with any new regulations?
Transitional periods are likely to be implemented to allow accountants and financial
advisers time to comply with the regulatory changes being implemented. Transitional
provisions are likely to vary depending on the changes brought into being. Members will
be provided sufficient time to make the necessary changes and are encouraged to
consider which solution will suit them best once the regulatory changes are further

Will there be penalties for non-compliance?
If members continue to provide services that require licensing without being licensed to do
so they will face severe penalties from ASIC and the potential for legal action.

Who will registration for superannuation, SMSF and other financial advice be with?
Registration will be with the Australian Securities and Investments Commission (ASIC).

What will the requirements be for registration to provide SMSF advice?
At this stage, requirements have not been finalised. If a base-tier, „light licensing‟ or
simple registration process is brought in for non-product based advice, registration may
include a combination of minimum training requirements (Regulatory Guide 146),
competency testing, PI insurance and, for members of accounting bodies, operational

What will the requirements for general registration be?
The minimum requirement for financial advice education is set out in ASIC‟s Regulatory
Guide 146 (RG 146). While accountants with degrees in accounting have certain skills
and knowledge, there are specific knowledge requirements that will have to be sought by
specialist RG 146 education providers. The IPA Program through the University of New
England has been updated to ensure RG 146 compliance.

It is likely all license holders and their authorized representative will have to meet
minimum training (RG 146), competency testing based on the areas of financial advice the
adviser provides, ongoing CPE requirements and/or regular competency update testing,
and PI Insurance. All advisers must also be a member of an external dispute resolution
service, that is, an independent organisation that resolves disputes between consumers
and advisers (e.g. the Financial Ombudsman Service (FOS)).

N.B. Educational requirements are likely to be raised in the near future as a result of FoFA
so those wishing to provide advice are advised to get in early.

What would be considered “experience” in terms of registration competency?
Many accountants will have had experience in SMSF and Superannuation advice by
virtue of having come under the previous exemption (provided under regulation 7.1.29A of
the Corporations Regulations 2001). In relation to other financial advice, however,
accountants are at a disadvantage as they have not previously been allowed to provide
this and therefore have no experience in it. This is a complex issue and a working group
has been convened with ASIC and the JAB to work out further details.

How will these reforms affect Financial Planners?
Financial Planners will also have to meet new requirements, particularly those providing
tax advice as part of their services. Those providing tax advice will need to comply with
extra competencies to ensure quality advice is provided and consumers are protected.
ASIC will remain the gatekeeper for financial planners, however, the Tax Practitioners
Board (TPB) will work with ASIC to ensure that the safeguards and standards which apply
to tax agents will apply equally to financial planners.

What is the IPA doing for me in regards to FoFA?
The IPA is in constant dialogue with the Government advocating on members‟ behalf. We
believe that accountants are equipped with the skills for financial advice and that laws
need to change to allow for financial advisers who can provide generic advice. We are
attempting to reduce the burden on members who will have to adapt to these changes,
while recognising the need to ensure high standard of financial advice.

The IPA is working with the other members of the JAB to respond to the FoFA proposals.
The IPA will continue to attend meetings on your behalf in regards to FoFA, including as a
member of the Working Group on the Accountants‟ Exemption, chaired by ASIC.

The IPA will keep members abreast of changes and developments as they occur and we
recommend members regularly review the IPA website for more information as well as
keeping an eye out for FoFA articles in the IPA magazine, Technical Advantage
newsletter, and other IPA publications.
Where can I get more information?
Media releases and updates can be found at the IPA website

Please contact Reece Agland, ph (03) 8665 3115 or, to discuss your particular queries or

We‟re here to help.

Useful Links

Australian Securities and Investments Commission (ASIC) –

ASIC‟s Regulatory Guide 146 (RG 146) -$file/rg146.pdf

ASIC‟s “Money Smart” -

Treasury‟s Future of Financial Advice Site -

IPA Mentions and Articles

„There for the taking: How accountants should be taking advantage of Cooper and the
Future of Financial Advice reforms,‟ by Reece Agland, National Accountant, Feb/Mar
2011, pp 50-1.

„360 Degrees: What would you like to see from the FoFA reforms?‟ National Accountant,
Feb/Mar 2011, pp 42-3.

„IPA launches FOFA assistance for members,‟ by Milana Pokrajac, Money Management,
7 Mar 2011, at

„Regulation of financial planners who provide tax advice,‟ by Tony Greco, 7 Mar 11, at
„ASIC retains key role as FP regulator,‟ by Elise Burgess, Financial Standard, 28 Feb
2011, p 8.

„For better or worse,‟ by Fiona Harris, SMSF, 23 Feb 2011, p 18.

„Devil in the details on planning reforms,‟ by Katie Walsh, Australian Financial Review, 11
Feb 2011, p.56.

„Treasury releases tax agent services details,‟ by Darin Tyson-Chan, InvestorDaily, 10
Feb 2011, at

„Financial Advice Reforms,‟ by Vicki Stylianou, National Accountant, Aug/Sep 2010, pp


„Those with advisers retire with more,‟ by Julie May, InvestorDaily, 17 Feb 2011, at

„Advice industry still held back: DKN,‟ by Kate Kachor, InvestorDaily, 17 Feb 2011, at

„Growth of SMSFs sends shivers through super industry,‟ by Tony Negline, The
Australian, 9 Mar 2011, pg 4.

„Shorten has his eye on commissions,‟ by Duncan Hughes, Australian Financial Review, 1
Mar 2011, pg 46.

„Call to relax payment ban,‟ by Duncan Hughes, Australian Financial Review, 11 Feb
2011, pg 59.

„Tax, super and federalism reform essential for economy,‟ by John Brogden, The
Australian, 22 Jan 2011, at

„Spinning a new tune on advice,‟ by Fiona Harris, InvestorDaily, 16 Aug 2010, at

„Top CEOs back statutory fiduciary duty for advisers,‟ by Michelle Baltazar, Financial
Standard, 9 Aug 2010, at